Impact of Environment on Company - Business Strategy

This report analyzes the impact of macro environment on IKEA and its business strategies. It also evaluates the internal environment of the organization and applies Porter's five forces framework for the market sector.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION......................................................................................................................................3
TASK 1.......................................................................................................................................................3
Impact of environment on company...................................................................................................3
TASK 2.......................................................................................................................................................6
Evaluation of internal environment.....................................................................................................6
TASK 3.....................................................................................................................................................11
Porters five forces framework...........................................................................................................11
TASK 4.....................................................................................................................................................14
Strategic Management plan...............................................................................................................14
CONCLUSION........................................................................................................................................16
REFERENCES........................................................................................................................................17

INTRODUCTION
Business strategy is defined as formulation of various tactics and business plan
in order to achieve the business objectives of the company. Business strategies help to
utilize and perceive opportunities. The purpose is to mobilize the resources and secure
an advantageous position.
The report is based on IKEA. It is retail industry. It is founded on 28 July in the
year 1943. The founder of IKEA is Ingvar Kamprad. The headquarters of the firm are
situated in Delft in Netherlands. It deals in the products such as ready to assemble
furniture, food products, kitchen appliances and home ware.
The report will analyzed the impact of macro environment in organization by
using pestle analysis and on its business strategies. It will assess the internal
environment of organization through VRIO model and SWOT analysis. It will apply the
Porters five forces model for the market sector. Based on porters five forces framework
it will evaluate Ansoff matrix for producing strategic directions.
TASK 1
Impact of environment on company
Vision - IKEA vision is to provide well designed and diverse range of home furnishing
products to the customers. These products they are tend to provide at economic
processes for ensuring affordable and accessible products to everyone.
Mission - Mission statement of IKEA tells that their business idea is form to support
their vision statement by offering well designed products in a wide range. These home
furnishings products are offered in less price so that many people can afford them.
Pestle Analysis
Pestle analysis of IKEA helps to gather detailed information about their external
environment. This helps the IKEA to formulate its business strategies. Thus, the Pestle
analysis of IKEA is done as follows -

Political - The firm has impact of controversies which are done in political grounds.
The company has accepted that its products are produced by political prisoners of East
Germany in the year 2012. This impacts a lot on the global image of the firm. In addition
the IKEA has allegations that its founder is active recruiter of Swedish Nazi group. The
degree of corruption in various markets where IKEA is operating can influence their
brand image as well as it is a restriction for the firm expansion (Bentley-Goode, Newton
and Thompson, 2017). The import restrictions in various countries can influence the
international market of the company. IKEA also has spent less on lobbying, as per the
research the company being a largest furniture retailer spends only $40k on the
lobbying activities. While the other companies in similar size spend a lot on lobbying.
Economical - The financial and economic crisis in the year 2007 has a huge impact on
the consumer spending. Although the IKEA is able to cope up with this situation by
using cost leadership strategy. The company has to eliminate about 5000 jobs but the
sales are dropped only by 1% in the year 2009. Changes in currency exchange rate
have direct influence on company's profitability. These fluctuations are between USD
and EUR. Interest rate fluctuations also impact on sales of the company. High rates of
raw materials results in increased production cost.
Technological - IKEA is investing highly in improving their technology. They are using
software’s such as Augmented Reality and Virtual Reality in order to transform their
sales. The company is also using data analytics in order to improve the customer
experience in retail sector. The company also maintains their data on its official website
through which the customers are able to view the online catalogues. The company is
also embracing the technology to maintain better network with its distributors and
suppliers. Technology like Cognitive intelligence and artificial intelligence are also
helpful for the retailers of the company to better understand the behavior of the
customers.
Legal - IKEA is facing criticism because of tax evasion in multiple countries from where
they are operating. The laws and regulations of various countries are impacting the
business of IKEA. There are barriers to entry in different countries. The company is
abiding by the legislation of various countries (Bıçakcıoğlu, Theoharakis and Tanyeri,

2019). There is also influence of labor laws while doing business in various countries
across the global.
Environmental - The IKEA is focusing on social and sustainability responsibility as in
countries like US and UK there is rules and regulations related to sustainability. IKEA is
also bound to do investment in renewable energy due to strict environmental issues.
The company is also focused on making better use of energy and raw materials. Thus,
it helps to keep the costs down of the company. This also leads the company to reach
its green targets. Through maintaining sustainability the brand image of the company
also gets improved among the customers.
Stakeholders Analysis
Shareholders analysis refers to identifying the people which are internally working in
organization. It is used to group them as per their participation level before the
beginning of any project. It helps to determine how to communicate with the
stakeholders groups in efficient manner. The Stakeholders of IKEA are the employees,
customers, suppliers, distributors and investors (Amran, Ooi and Hashim, 2016). The
stakeholders of IKEA are divided into four categories namely, high interested, high
power, less interested and low power. Thus, IKEA use various strategies to manage
each of them properly. For example, the Stakeholders whom have high interests and
high power are the players for the company. The business manager work is to pay more
attention towards such type of stakeholders. These stakeholders have ability to take
important decisions in context to company. Investors are somehow owners to the
company as they spend high amount of capital in the business. Thus, they have given
high interest and high power.
Distributors are responsible to supply the goods of IKEA to various retailers; if
they are not present then the company is unable to supply their end products to the
customers. Thus, they have benefited with high power and they have low interest. A
customer shows high interest but there is power is low as compare to other
stakeholders of the company. Employees are just performing their duty for the

company. Thus they show low interest and also have low power. Employees of IKEA
doesn't involved in strategic decision making of the company.
Stakeholder’s matrix
TASK 2
Evaluation of internal environment
RBV framework
Resource based view is a type of managerial framework that helps to determine
strategic resources of the company in order to exploit them for achieving competitive
advantage on sustainable manner (Yuliansyah, Rammal and Rose, 2016). It helps to
give a perspective about why an organization failed or succeed. The RBV also put
emphasis on capabilities and resources which are present within in the company for
developing the sustainable competitive edge. It allows the firm to develop new products
and also helps in expansion of business. Competitive advantage take place when their
situation of resource heterogeneity or immobility.
Resource based view of IKEA

IKEA is able to select the feasible position while doing delivery of the products. The
warehouses of IKEA are also smartly located in various sectors so that the firm is able
to control its activities at greater level. This strategy is helpful for analyzing the
resources deployment, their queue times and processing time for performing various
actions in the business. Resources are detailed and applied in applicable working
schedules by stimulating them at greater level.
VRIO Model
VRIO model is sub section of resource based view that helps to examine the
internal characteristics and performance of company. It supports a framework that is
more focused on competitive advantage rather than analysis competitive environment
(VRIO: From Firm Resources to Competitive Advantage, 2016). Thus, its key concepts
are sustainable competitive advantage and firm resources. The resources of the firm
are defined as organizational process, assets capabilities, information and attributes
that are controlled by the IKEA to improve its effectiveness and efficiency.
Valuable - VRIO, V stands for valuable resources. The resources can said as valuable
when they enable the company to implement the strategies in order to improve the
efficiency and effectiveness of organization.
Rare - The Company’s who have acquired rare resources are termed as rare. These
resources are not available to every company (Yuan, Lu and Yu, 2018). The firm can
take competitive advantage if they have valuable and rare resources available.
Inimitable - The resources should be costly and hard to be substitute or imitate. The
resources can termed as imperfectly imitable by combing the three reasons. First one is
unique historical conditions, second is casual ambiguity and third one is social
complexity.
Organization - The resources are unable to create any of the advantage if the company
doesn't perform in organized manner. To exploit the resources adequately it is crucial to
capture the value. Thus, the company needs to focus on their capabilities in order to
coordinate and assemble the resources of the business.

Figure 1 VRIO Model (Source: VRIO: From Firm Resources to Competitive Advantage,
2016)
VRIO analysis of IKEA
Valuable Rare Inimitable Organization
applicability
Yes Yes No Yes
This allows the
IKEA to take
competitive edge
because it is
different from its
competitors. The
IKEA do innovation
in their business
model which helps
IKEA use easy
processes in their
business. They
manage it in a
unique way which
different them from
its competitors. This
is rare for the
customers to find a
IKEA is not able to
discover the
resources which are
inimitable
(Soltanizadeh,
Rasid and Ismail,
2016). The
competitors are way
ahead to put the
IKEA is established
in the market for the
long time. It has
strong brand value
among the
customers. Thus,
the company is
recognized among
the various

them for producing
democratic design.
They also drive
innovation in their
value chain.
good combination in
terms of quality,
design and price.
The customers
cannot find both the
three combination at
some another store.
right combination of
time, skills,
corporate culture
and money which is
imitable for the long
run.
countries all over
the globe. The
company is
managed in hyper
dynamic conditions
and also need to
manage various
cultures around the
globe. Some
cultures are not
willing to work with
IKEA or don’t want
to participate in
value chain, even
though the IKEA
managed them well.
For example, IKEA
get succeed to
manage the culture
with Saudi Arabia.
SWOT analysis of IKEA
Strengths
 It has a strong Global brand which attracts the key consumer groups and the
company promises same quality and range for each and every customer
worldwide.
 The Vision and Mission of the company is clear and attractive that is, "to create a
better everyday life for many people".

 The company is based on offering wide range of well designed, functional
products at the lowest possible prices which attracts each and every consumer
group.
 The company has a democratic design that is reaching an ideal balance between
function, quality, design and price. IKEA's cost consciousness is the one of the
biggest strength of the company.
Weaknesses
 The size and scale of its global business is too short but is as standard heights
thus, it is hard to control standards and quality (Leonidou, Christodoulides and
Palihawadana, 2017).
 The need for low cost products is also a weakness because the company needs
to balance against producing good quality and producing at the lowest possible
price.
 The company needs to keep good communication with its consumers and other
stakeholders about its environmental issues but the scale of business operation
makes it too difficult.
Opportunities
 The growing demand for greener products makes it a competitive advantage for
the IKEA Company.
 Also the growing demand for low price products and the trends in the current
financial system mainly result in consumer attractiveness towards the business
unit.
 The developing social responsibility of the IKEA company and its support for
charities makes goodwill of the company and thus is beneficial in form of
opportunity.
Threats
 The changing social trends such as the slowdown in buyers due to change in
social believes make it for the company in a core market segment.

 The change in market forces that are unfavorable for the firm and are more
favorable for the competitors entering the low price household and furnishings
market. The company also needs to apply unique qualities to compete with these
market forces.
 The changing economic factors such as the recession rate have slowed down
consumer spending and disposable income is being reduced (Habib and Hasan,
2017)
TASK 3
Porters five forces framework
Porter's five forces model for IKEA
1. Bargaining power of suppliers - The bargaining power of the suppliers of IKEA is
low and the number of suppliers is large and there is small sized and weak financial
position which does not allow them to do so. The company can easily change its
supplier to another whereas if a supplier loses the business, so it will be a difficult
situation for the company (Porter’s five forces analysis, 2019). As a result area the
company needs to set the rules for its suppliers that they must follow. IKEA has
launched a code of conduct for its suppliers that are known as IWAY.
2. Threat from substitute products - The threat from substitute products for IKEA
Company is low. The company has several factors that minimize this threat. One of
them is goodwill. From a number of years the company has built a good public image
which maintains trust between the customers and the company. The company's
affordable pricing strategy and customer service also helps in minimizing the threat from
substitute products. Still, the most important factor is the availability of warehouses.
3. Threat from New entrants - The threat of new entrants entering the market and the
fear of stealing market share is most of the time low. New brands can enter only in a
smaller scale of market. So they will not have any major effect on the business of IKEA.
There are several big firms engaged in the business of home furnishing, and they need
a lot of time and investment to grow. If a new brand enters the market, it will take time,

efforts as well as investment to grow into a large scale will only be able to grab less
share in the market.
Figure 2 Porters Five forces Model (Source: Porter’s five forces analysis, 2019)
4. Bargaining power of buyers - The bargaining power of individual buyers is
insufficient in case of IKEA, as in a group they hold some sufficient customers by which
there is so much focus on attracting and retaining the customers (Ghemawat, 2016). All
the customers in the market have grown more rapidly from past years. Apart from that
increased competition, technological growth has brought this change in the market.
IKEA also focuses only on marketing and promotion.
5. Level of competitive rivalry - The level of competitive rivalry in the home furnishing
is between moderate to high. The rivalry in the market share is not as high as in several
other fields of business, but still IKEA is in a huge number of competitors. Apart from the
home furnishing companies that directly with IKEA are the super markets and brand
stores. These also sell home furnishing products and give a strong competition are
threat to IKEA.

Producing strategic decision with the help of Ansoff’s Matrix
Ansoff Matrix is referred as planning model of marketing which helps to
determine the market and product strategy of IKEA. As per the Ansoff matrix there are
four strategic options which are available for the company is market penetration, market
development, diversification and product development.
Market Penetration - This refer as selling of existing products in the market. The
markets in which these products are sale are already established on earlier basis
(Razak, Pangil. and Asnawi, 2016). IKEA use this marketing strategy effectively in their
business. For example, IKEA use catalogues for increasing the furniture retailer.
Instrumental role is played by the IKEA catalogues for improving the efficient of market
penetration.
Market development - This refers as development of new product in order to sale it in
existing market. Growth Strategy of the company is product development. IKEA is able
to gain competitive advantage by developing and introducing a new product in the
market. The home furnishings range of IKEA is tend to produce 2500 new products on
yearly basis. The IKEA purchase some of the products from the suppliers and the rest
of them are developed in company.
Market Development - It refers to find a new market to sales the existing products
(Cubas‐Díaz, and Martinez Sedano, 2018). This can be termed as expansion of the
IKEA business. The company is highly engaged in developing new markets in order to
boost the sale of their existing products. The IKEA currently operates from 422 stores in
fifty markets across the world. The company is planning to enter more into developing
countries to fulfill their medium and short term perspective.
Diversification - This involves selling of new product in entirely new markets. The risk
of diversification is generally high. For example, IKEA has done diversification by
opening the restaurants in their furniture retail shops. The furniture retailers have
expanded their business by opening the food restaurants in their stores. The furniture
retailer has used cost advantage strategy and no-frills strategy in their business.

TASK 4
Strategic Management plan
Porter’s generic strategies in order to create strategic plan
Cost and price leadership strategy - It is a strategy which establishes a competitive
advantage for the firm by having the lowest cost of operation and lowest selling prices in
the industry. Cost as price leadership strategy is often done by company efficiency,
size, scale, scope, and cumulative experience (Olson, Slater and Olson, 2018). The
IKEA company can also succeed through cost and price leadership strategy as Walmart
company has also succeed with the same strategy and is one of the best in the market.
The company can cut down on excesses or can reduce unnecessary or overlapping
activities, thus they will be able to provide the customers with quality products at low
prices.
Differentiation strategy - It is a strategy which aims at distinguishing a product or
service forms other similar products, offered by the competitors in the market. It aims at
developing a product in such a way that it looks unique and different from others and
can easily be identified by the customers. The IKEA Company is also doing
manufacturing of its products in such as way that it looks different and unique.
Differentiation strategy is the key to successful marketing, competing and developing
your sustainable competitive advantage. The company can take a competitive
advantage against its competitive rivalry because of its brand loyalty by its customers.
Extended model of Bowman's clock - Bowman's strategic clock is a model that
explores the various options for strategic positioning. It analyses how a product should
be positioned to give it the most competitive position in the market (Park and Mithas,
2020). The IKEA Company can do this strategy with the main purpose of analyzing how
to position a product based on two dimensions. The first dimension is price and the
second one is perceived value. This strategy will basically help the IKEA Company to
illustrate the method for better positioning of the business.
Tool Management that can use to apply these strategies

Hybrid strategy - It is a strategy which seeks simultaneously to achieve Differentiation
and low price relative to competitors. The main aim of this strategy is to deliver
enhanced benefits with low prices. This strategy also helps in achievement of sufficient
margins for reinvestment (Oldman and Tomkins, 2018). The IKEA Company can also
do this strategy by doing both Differentiation strategy and cost strategy. The Hybrid
strategy is also known as the combination of the two as it is derived by the end results
of the both strategies. This strategy works with Differentiation of the product of the
business unit from others, and selling the products at the lowest price and
manufacturing that product also at lowest possible price.
Diversification - This is a strategy which is opting by the business units for its
diversification and development. This strategy involves widening the scope of the
organization across different products and market sectors. This strategy is mainly for
the firms who want to enter into a new market or industry which the organization is no
currently in. The IKEA Company can also do this strategy for entering into a new target
market or increasing the current target market to various countries. The organization not
only diversifies its products offering in the target market but also expands its business
units.
Vertical and horizontal integration - vertical and horizontal integration strategy is a
competitive one in which a company takes complete control over one or more stages in
the production or distribution of a product (LimChalmers and Hanlon, 2018). The
companies like IKEA opts this strategy to ensure full control over the supply of the raw
materials to manufacture its products. The integration is also done to keep an eye on
the acquisition of business activities that are at same level of the value chain in similar
or different industries. This strategy is mainly for integrating of control and acquisition of
business activities of the same level.

CONCLUSION
It has concluded from the above report that Business strategies are helpful for
the company to take competitive advantage. To meet the challenges and reducing the
threats of the business it is essential to formulate business strategies. It helps direct
behavior and efforts towards the right path. It has been summarized that the Company
provides low price product which only attract low income consumer groups and the
company is unable to sell the products to high income groups.
It has been determined that the rapid changes in technological environment are
creating a hurdle in Diversification of the business unit as competitors will take
advantage of obsolescence of the firm's technology. It has been evaluate that RBV is
helpful in industrial organization which perspective relies on external factors that helps
to determine profits and performance potential of a business.

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